Banks’ profit may dip over fintech encroachment on financial services

Only CBN can direct us on old Naira notes — Banks

Financial analysts have warned that Fintechs could be a major threat to profitability of banks as their services continue to gain popularity in financial service delivery.

Although many banks are not concerned about the threat, analysts at Coronation Merchant Bank, in a report on Nigerian banks titled “Nigerian Banks, Resilience Built In,” noted that, the fintechs would be one of the major sources of threat to the overall profitability of banks.

This, they said, is because their (fintech) banking platforms would be attractive to tech-literate customers who do not like visiting their local banks’ branches and could offer much more efficient services than the conventional banks.

Speaking with journalists on the report, head of research at Coronation Merchant Bank, Guy Czartoryski, noted that while most of the conventional banks they spoke with are apparently not concerned about the threat, “one potential threat to the overall profitability of the banks in this study comes from fintechs, specifically internet banks, such as; Kuda, Carbon and Rubies.

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“These banking platforms are attractive to millennials and other tech-literate customers and require little or no physical banking presence. The obvious advantage they have over conventional commercial banks is low cost.”

Czartoryski further said that most commercial banks “see themselves as partners with internet banks, offering customers cash withdrawals and supplying them with clearing service.

same time, they offer their own USSD-based offerings, and therefore compete with internet banks in some areas. Time will tell whether the conventional banks are justified in their confidence, or merely complacent.”

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The report also showed that Nigerian banks’ earnings have been remarkably resilient over the interest rate cycle, with their profitability improving over time as their stock values are remarkably cheap compared to Ghanaian and Kenyan bank stocks.

Czartoryski explained that a 10-year study of the margins and profitability of six listed banks: Zenith Bank, GT Bank, Access Bank, FBN Holdings, UBA, and Stanbic IBTC, showed that the banks have adapted successfully to many changes in interest rates over the last 10 years from 2010 to 2020.

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“In terms of valuations, and despite a significant rally in share prices over the past year, Nigerian bank stocks look remarkably cheap, both in relation to other Sub-Saharan African banks and in relation to their own valuation history.

“Five years ago the median prospective price-to-earnings (PE) ratio was around 5.0x. Now it is 2.5x. This downward shift in ratings has exposed meaningful value for today’s investors, in our view.

“We look at the growth record of the banks and find that with one notable exception, balance sheet growth has been elusive, something that becomes clear when we re-state key metrics for the effects of inflation over time.”


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